For better or worse

Younger couples aren’t making a pension provision for their spouses. How might your partner get by if the worst happened? asks financial journalist Kara Gammell

It’s maybe not a very pleasant thought, but have you considered how your partner might cope financially if you were to pass away? An increasing number of younger couples are failing to make any provision for pension payments to continue to their partners in the event of their death, according to research by pension firm Aegon.

It found that while three quarters of people aged 75 and over have made arrangements to keep part of their pension being paid to their spouse in the event of their death, this falls less than half (47%) of those aged 45 to 54. Aegon suggests there has been a generational shift away from people making such provision.

A tragic oversight

Over time, more people will have a pension in their own right thanks to the workplace pension reforms, which mean people are automatically enrolled into a pension if they earn above a certain amount.

But Aegon found that a quarter of those surveyed said their spouse had no pension of their own – and many people working part time might not reach the threshold where they are automatically enrolled into a pension.

These findings, coupled with recent changes that mean the State Pension no longer continues to be paid to a surviving spouse, highlight a very real problem. Unless couples plan their retirement finances together, there’s a risk that the surviving spouse may see a shortfall in their retirement income.

Kate Smith, head of pensions at Aegon, says that pension provision for a spouse used to be common practice in defined benefit – often called final salary – pension schemes, so it wasn’t a conscious decision they had to make.

“With the shift away from defined benefit and changes to State Pensions meaning a partner will no longer receive a survivor pension, these findings, which suggest younger and future generations of retirees are less likely to provide for their spouse, are worrying,” she says.

So what should you do to make sure you and your spouse are properly prepared for retirement?

Do your sums

First, you need to review your retirement plans as a couple, to ensure that should something happen to you, your partner will be provided for and won’t end up reliant on a less than generous State Pension.

Traditionally, this is more of a problem for women as on average they tend to live longer than men. They may have been more reliant on a husband for pension income, or might not have been able to build up an adequate pension for themselves due to time out to care for children or elderly relatives.

“As a couple your finances become intertwined from an early stage – joint bank accounts and joint mortgages form the basis of many ‘financial’ partnerships,” says Smith.

“But for those planning to grow old together, it’s important to consider the adequacy of retirement income for both partners including the financial consequences when one of you dies. The closer you get to retirement the more you need to begin to plan your retirement finances in tandem.”

For those fortunate enough to have built up a defined benefit pension, it’s worth checking the rules regarding what your spouse will receive if you die – and vice versa – and whether this is enough to live off.

If you have a defined contribution pension – where you pay into a pot that is invested on your behalf – you might decide to buy a joint life annuity. This means that payments carry on after the death of one of the couple.

Or, you could choose to move some of your pension pot into drawdown, leaving any money unspent for the remaining spouse. Do the maths sooner rather than later so that you can make up any shortfall should the income projected not be adequate.

Get a Will

Anyone with assets should have a Will, but many of us put off getting a Will written because we think it will be expensive – and about half the people who die each year do so intestate. That means the law will determine who inherits your assets, and the taxman may scoop up far more of your hard-earned possessions than you would like.

Wills are legal documents, and as small errors can cause big problems it’s preferable to have someone qualified draft it for you.

The cost of using a solicitor varies depending on how complicated your will is and where you live. However, it should be made clear from the start. Find a solicitor in your area by contacting the Law Society on 020 7242 1222 or lawsociety.org.uk.

A number of trade unions, such as Public and Commercial Services Union (PCS), the NASUWT teachers’ union and Unison offer free or heavily discounted will-writing services to their members.

Cover your bases

Managing a pension portfolio may be a challenge for many people when they reach their seventies and eighties. Age-related medical conditions such as dementia can make it impossible. What’s more, no matter how old you are, should you have an accident, such as a car crash, or perhaps sustain a serious sporting injury, your loved ones would find it extremely difficult to gain control of your affairs.

It might come as a surprise, but if you end up unable to make decisions about your financial affairs, your next of kin doesn’t have an automatic right to make decisions on your behalf. But by putting in place a Lasting Power of Attorney (LPA) you can nominate someone to manage your finances or make decisions about your welfare in the event that you are unable to.

There are two different types of LPA: health and welfare, and property and financial affairs.

If you do not have an LPA in place, you risk your family and loved ones having to apply to the Court of Protection to either become your deputy, the name given to individuals authorised to make decisions on someone’s behalf, or to make one-off decisions. This can be an extremely laborious and costly experience.

To set up and register an LPA, first get the forms and an information pack from the Office of the Public Guardian (OPG). You can download the forms or fill them out online. Alternatively, a solicitor or local advice agency can help you set up the LPA and register it.

Contact the OPG for information about LPA registration fees. If you have a low income, you may be eligible for a discount, and if you’re receiving certain benefits you won’t have to pay anything at all. Bear in mind that you can only register an LPA while you have the mental capacity to do so. Once you have lost capacity, it is too late.

Retiresavvy is brought to you by Skipton Building Society. This article has been commissioned by retiresavvy and any opinions voiced are the author's own.

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